BLUE SKY BREAKOUT

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$2 TRILLION OIL WAR~ SAUDIS air strikes to YEMEN

Oil prices surge after Saudi air strikes in Yemen

By Himanshu Ojha

LONDON Thu Mar 26, 2015 9:42am EDT


Oil prices soar with Saudi air strikes
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(Reuters) - Brent crude surged on Thursday after Saudi Arabia and its Gulf Arab allies began air strikes in Yemen, but oil pared earlier gains of nearly 6 percent to trade back below $58 a barrel.

The military operation against Houthi rebels, who have driven the president from Yemen's capital Sanaa, could stoke concerns about the security of Middle East oil shipments if the conflict widens.

The strikes have not disrupted major oil facilities of key Gulf producers, such as Saudi Arabia, the world's top oil exporter, but there are concerns the conflict might spread. Yemen's small-scale oil output has been disrupted for months.

Brent futures LCOc1 were up $1.20 at $57.68 by 0916 EDT, off an earlier high of $59.78. U.S. crude CLc1 was up $1.07 at $50.28 a barrel, after reaching $52.48 earlier in the session when both contracts gained around 6 percent.

"I think that the surge we've seen in prices over the last 24 hours or so has been a bit of an overreaction," Jordan Perry, senior analyst at risk consultancy Verisk Maplecroft, told the Reuters Global Oil Forum.

Riyadh's rival Iran denounced the assault on the Houthi militia group, which it backs, demanding an immediate halt to Saudi-led military operations in Yemen, Iranian news agencies reported. A senior Iranian official ruled out military intervention.

Kuwait, a member of OPEC that supported the strikes, said it had raised security around its oil facilities after the military operation in Yemen.

While Yemen is only a small producer, Arab producers have to ship oil past its coastline via the Gulf of Aden to get to the Suez Canal, a key passageway to Europe.

The waters between Yemen and Djibouti, known as Bab el-Mandeb, are less than 40 km (25 miles) wide. They are considered a "chokepoint" to global oil supplies by the U.S. Energy Information Administration (EIA), which estimated 3.8 million barrels a day passed through Bab el-Mandeb in 2013.

Four Egyptian naval vessels have passed through the Suez Canal en route to Yemen to secure sea lanes, maritime sources said.

Oil prices fell back after the dollar strengthened in the wake of strong employment data, having earlier hit its weakest level against the euro in three weeks EUR=. Dollar-priced commodities tend to move inversely against the U.S. currency.

(Additional reporting by Aaron Sheldrick and Osamu Tsukimori in Tokyo, Meeyoung Cho in Seoul, Henning Gloystein and Florence Tan in Singapore; editing by Dale Hudson and Jason Neely)

http://www.reuters.com/article/2015/03/26/us-markets-oil-idUSKBN0MK0Z020150326